This post was last updated on 13 April 2023
Overview of key macroeconomic indicators
Inflation
Consumer Price Index (CPI) growth has dipped a little while the Wholesale Price Index (WPI) growth has dipped considerably as of Nov 2022.
Dropping Inflation certainly relieves consumers who fight their way out of covid-19 backed slowdown. This easing of inflation also will give relief to RBI while it fights a tricky fight to control inflation while handling interest rates, currencies, and global macros. As of now, it seems, RBI is doing a great job.
Interest Rates
After a long cycle of declining or stagnant interest rates, thanks to inflation, the interest rates have started to move upwards.
We’re officially in a rising interest rate cycle with two steep rate hikes by RBI in quick succession. The fourth Repo rate hike came in Dec 2022 which took the repo rate to 6.25.
Trade – Exports & Imports
India’s trade deficit stands at ~$24 Bn. It has widened recently mostly due to imports of crude happening at higher prices than earlier.
Passenger Car & 2W Sales
The number of passenger cars sold per month in Nov 2022 is still quite lower than what it has been in the recent past. But, the pre-owned car market is booming as per media reports. Moreover, car dealerships are asking customers to patiently wait for their cars to be delivered. This ties nicely with the conclusion that this fall in new car sales is due to global supply shortages, especially in semiconductors. So demand may not be as low as these numbers indicate.
Two-wheelers serve as a key indicator of the income levels of the middle class. Two-wheelers are utilitarian (mode of transport) and lifestyle upgrade status symbols as well. So 2W is always on the top of the purchase list which means – an increase in disposable incomes induces sales. 2W sales have been picking up nicely since Jan 2022 which is a strong indicator of increasing income levels.
Fuel Consumption
Monthly consumption of petrol & diesel is near its pre-covid peak. The consumption is back to pre-covid levels even when the prices of petrol and diesel are much higher.
Credit Growth
As they say, “cash is oxygen”. Credit growth is a primary indicator of the health of Small & Medium Enterprises. The credit growth of commercial bank loans stands at 15.3% which is much lower than what it was in 2012. So potentially, a decade of lower credit growth in the economy.
We are seeing a sharp uptick in credit growth in 2022. The steep increase in this growth rate is due to the lower base value of 2021 – the time when 2nd wave of covid hit the country.
According to us, credit growth has been struggling for mainly two reasons 1) Higher lending rates offered by the banks (decreases demand), 2) Lack of interest (or trust) on banks’ part to lend to businesses (low supply), and 3) Decreased avenue of cash deployment by small & mid-size businesses i.e. lower economic activity.
GST Collection
GST (or Indirect tax) collection just dropped off from an all-time high. A higher GST indicates higher economic activity and a thriving GDP but other economic indicators suggest otherwise. The current GST collections are higher than what the government estimated earlier which may help in funding welfare schemes.
FPI Flows (USD)
Foreign Institutional Investors (FIIs) have been net sellers since Oct 2021 which has clearly been reflected in the markets. This has been a global trend and increases in interest rates by FED have triggered an increase in outflows. It will be interesting to see when this money (or liquidity), that left our markets, comes back. However, September – November period has seen steady inflows.